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SAN ANTONIO-The San Antonio office market, despite some up and coming negatives, has hit bottom and is ready to start tracking upward, says a Grubb & Ellis Co. research analyst. The second quarter numbers show a positive 103,998 sf of net absorption, coming within 25,417 sf of Q1′s negative total.

The positive absorption is tied to an ongoing tenant shuffle in which “everyone is looking to take advantage of these low rates,” Shawn Martin tells GlobeSt.com. Demographically, the smallest of the “Texas Four” appears healthier than its metropolitan counterparts. Then again, the bulk of its 22-million-sf inventory is comprised of class B space where, as Martin says, “no one’s looking to impress but just looking to do business.” Overall, the office vacancy is riding at 19.3%, a 30-basis point improvement from three months ago.

San Antonio, though, could be slapped with some hard hits. WorldCom has a 400,000-sf campus at the intersection of Loop 1604 and US Highway 281. Martin says the word on the street is that the campus will remain intact. Still, that’s a corporate decision the Mississippi-based telecommunications could reverse as its Chapter 11 plays out. Meanwhile, the hometown SBC is talking about exiting 90,000 sf in Q1 2003 while USAA, another San Antonio native, has just vacated 85,563 sf in a retreat from ancillary office space to its main campus. The SBC hit could worsen with yesterday’s news that another 3,000 workers will be laid off by October, taking the total to 16,000 in a year’s time.

While the big players wrestle with downsizing, smaller tenants are moving around in a market with class A rates of $20.99 per sf on the average and class B rents averaging $16.48 per sf. Even sweeter, says the research team, is effective lease rates are coming in about 10% lower than the asking price. “Now is the time for tenants to lock in long-term leases as the vacancy rate may have peaked and asking lease rates could soon begin to climb by year-end,” researchers conclude.

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